Episode #499: Kevin Carter, EMQQ World – India is Occurring NOW – Meb Faber Analysis

Episode #499: Kevin Carter, EMQQ World – India is Occurring NOW

Visitor: Kevin Carter is the Founder & Chief Funding Officer of EMQQ World. Whereas he principally considers himself an energetic “worth” investor, he has collaborated with Princeton economist and indexing legend, Dr. Burton G. Malkiel, for greater than 20 years.

Date Recorded: 8/30/2023     |     Run-Time: 55:41

Abstract: In at this time’s episode, Kevin kilos the desk for India’s tech sector. He covers the demographic developments, The India Stack, the distinction from China 15 years in the past and the present valuations. He additionally explains why environmental dangers are one thing to control in India.

Hearken to Kevin’s Kevin’s first look on the podcast.

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Hyperlinks from the Episode:

  • 1:13 – Welcome again Kevin to the present; Episode #187: Kevin Carter,
  • 1:35 – Classes realized from playing
  • 4:18 – Rising markets and points with the MSCI index
  • 13:52 – The demographic shifts fueling India’s booming digital economic system INQQ ETF
  • 18:01 – India’s tech stack
  • 22:17 – API-driven digital infrastructure for a paperless, cashless, and presence-less society; India Stack; UPI; GEO; ONDC;
  • 33:00 – India’s digital platform sparks each optimism & privateness considerations
  • 37:32 – Rising markets funding alternatives and challenges
  • 44:15 – Global CAPE ratios from Barclays
  • 45:03 – Reflecting on experiences in South Asia
  • 49:16 – Shantaram by Gregory David Roberts; The White Tiger by Aravind Adiga;
  • 49:39 – India’s potential dangers
  • Be taught extra about Kevin: EMQQ Global; LinkedIn



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Meb Faber is the Co-Founder and Chief Funding Officer at Cambria Funding Administration. As a result of business rules, he won’t talk about any of Cambria’s funds on this podcast. All opinions expressed by podcast members are solely their very own opinions and don’t replicate the opinion of Cambria Funding Administration or its associates. For extra info, go to cambriainvestments.com.


What’s up, everyone? We obtained a brilliant enjoyable present at this time. We’re crossing some borders with our returning visitor, Kevin Carter, Founder and CIO of EMQQ World. In at this time’s episode, Kevin kilos the desk for India’s tech sector. He covers the demographic developments, the India tech stack, comparisons to China 15 years in the past within the present Indian inventory valuations. He additionally explains why environmental dangers are one thing to control in India. Try the hyperlink within the present notes for Kevin’s first look on the present, which is a good pay attention earlier than this episode. Please take pleasure in this episode with Kevin Carter.

Kevin, my buddy. Welcome again to the present.


Thanks, Meb. Good to be again.


The place do we discover you at this time?


I’m in Lafayette, California, 15 miles east of San Francisco.


One among our mutual favourite locations on the planet, Lake Tahoe. When’s your subsequent journey up there, man?


I’ll be going up this weekend.


Final time we talked to you and, listeners, I’d really extremely suggest to take heed to the primary episode with Kevin as a result of we go into his background, which is fairly attention-grabbing. We speak loads about China and it’s a reasonably good half one to this episode. So we’ll put it within the present observe hyperlinks, possibly we’ll publish it within the feed once more simply to have each there. We’re going to hit on a unique matter at this time, however within the meantime, we had one among your companions and mentors over the yr on the podcast, Burton Malkiel, who listeners will definitely know that identify. We had been joking as a result of we mentioned, “Burton, give us a bit of one thing to ask Kevin on the present,” and he says, “Do you know after we had been touring across the rising markets, Kevin’s a little bit of a card participant.” So I at all times say, what does that imply? Is that Bridge, Blackjack? Are you a craps gambler? What’s the story? You simply doing your individual due diligence in Macau?


That’s humorous. I’ve been to Macau. It’s arduous to discover a Blackjack desk at Macau and Blackjack’s the sport I wish to play, however Burton and I, Burton likes Blackjack and he performs by the foundations. He’s obtained his guidelines. I don’t know when you requested him for his guidelines, however he’ll give him to you. I can’t bear in mind what they’re precisely. I don’t play by these guidelines. I play a bit of bit extra by intestine with some math as properly, however sure, we’re in Australia collectively for some displays about China and we performed on the Star On line casino in Sydney is the place Burton taught me his guidelines of Blackjack. I feel we each walked out with the identical sum of money, however mine was a bit of bit extra unstable.


I feel each younger individual goes by a second in time the place there’s this attraction to this idea of the Martin Gale, and really shortly you study loads about wager sizing as a gambler, whereby, listeners, when you don’t know the Martin Gale, it’s primarily you double down each time you lose. Theoretically, you probably have an infinite bankroll, you’ll by no means lose as a result of finally you’ll win. The issue comes, you study a really fast lesson and the facility of exponentials as a result of in a short time when you lose 5 10 in a row, the wager dimension will get greater than any bankroll anybody will ever have, however assume that’s a enjoyable lesson. Playing, so long as you don’t go broke and even then it may be a great lesson. There’s so many good classes in fascinated with place sizing and the right way to play and odds.


That’s proper. Much like quick promoting, the place you’ve gotten 100% upside and limitless draw back and your wager will get larger because it goes, in contrast to an extended place which will get smaller, it will get larger.


One among my all-time early favourite podcast visitors was the godfather of Blackjack card counting, Ed Thorpe. Additionally top-of-the-line performing hedge fund managers of all time, who the unique beat the vendor and beat the market books. Listeners, you’ll be able to go discover an outdated copy. They’re actually classics. Properly, let’s speak about rising markets. Like many cycles, this cycle feels, like within the inventory markets, they’re persevering with to emerge. I feel as a share of world market cap, we’re within the low teenagers, however once I talked to advisors over the previous variety of years, and Goldman has give you some stats on this, I feel the common allocation sits down round 2% or 3% as a share of their inventory portfolio. So huge underweight. Speak to me a bit of bit about the way you see them broadly after which we’ll begin to dial in additional particularly to 1 nation specifically.


I inform individuals there’s actually two issues to learn about investing within the rising markets. The primary is that the factor that’s rising are the individuals. You’ve obtained six and a half billion individuals they usually’re shifting up. They’re rising they usually need stuff. They need extra and higher meals, extra and higher clothes. They need home equipment. They wish to go to motion pictures and take holidays they usually need a car, they usually need their youngsters to go to Harvard, and that’s a very powerful factor, and that’s a really lengthy one-directional secular pattern that has been very well-documented. So when you’re investing in rising markets, it’s my perception that that’s what you need to be making an attempt to seize.

The second factor about rising markets is that there’s a giant drawback, and the issue is the index itself. The MSCI index, which we use to trace the efficiency of rising markets, has a number of issues. The primary and largest drawback, which I encountered my first 5 minutes into being a part of rising markets 18 years in the past, is that the rising markets have a number of these government-owned banks and oil firm, these state-owned enterprises which might be inefficient, they’ve conflicts of curiosity with you as an investor, and the governance isn’t superb, and the corruption is in every single place.

So what you discover, and I obtained pulled into China 18 years in the past, due to Burton, the very first thing I did was I requested for an inventory of all the businesses within the China ETF as a result of we had these buyers that had been excited by investing in China after listening to Burton speak about China. I assumed we might use the ETF that iShares had. There was just one China ETF again then. It was the FXI, however since I’m an Omaha individual, I wished to see what had been the businesses. I don’t care concerning the identify of the ETF, I wish to know what are the companies we’re going to personal.

So I requested for that listing and that’s when Burton pulled me apart and defined to me that 80% of the index was government-owned banks and oil corporations and the way the government-owned banks would make loans to corporations that had been already bankrupt, principally, to maintain the workers paid. In order that’s a giant drawback and I don’t have an answer for it. Numerous buyers have given up on rising markets they usually have very small allocations as a result of they’ve had a number of promise for a very long time, however nobody’s actually obtained any actual return from investing there.

The truth is, I feel the 12 or 13 yr return is about 25%. I do know that for the ten years ended with 2022, the earnings progress was unfavourable. So in Omaha, investing is absolutely easy. The explanation companies have worth is as a result of they make earnings for the house owners. The one method to make the worth go up is to make the earnings go up, and that hasn’t occurred within the conventional indexes, that are, once more, filled with banks and oil corporations and mineral corporations which might be state-owned and not likely for-profit in a conventional sense.


We spend a number of time most likely method an excessive amount of for this to be wholesome and helpful to our obtain statistics, however we spend a number of time speaking about market cap investing and the way it’s an attention-grabbing and good first step, and it enabled some issues within the ’70s, however so far as an investing methodology can turn out to be fairly suboptimal given some situations, significantly instances when issues go completely bananas.

The attention-grabbing half that I really feel like is likely one of the greatest dislocations for me when speaking about rising markets as a result of I really like my polls on Twitter, and we’ll ask individuals what share of world GDP is rising markets, and virtually everybody says zero to twenty%, 20% to 40%. We each know that that’s completely incorrect. Rising markets find yourself being most of world GDP, which surprises so many individuals. Then trying on all the assorted statistics, like after we had been speaking about Macau earlier and also you Google Macau On line casino annual income and Vegas annual income, in a short time individuals could be shocked that Macau is multiples of Las Vegas already. So simply the dimensions of rising markets is absolutely staggering, significantly for most individuals who’ve by no means finished any touring, which is, after all, many, if not most.

So that you and I sat all the way down to dinner and looking back, we most likely ought to have gone to an Indian restaurant. There’s some good ones round right here versus the one we went to, which was good, however you had been very excited and animated, which is your pure state, however give me the lead in. What was the preliminary attractant to what you see as a reasonably large alternative right here?


Properly, 9 years in the past, first recognized was the truth that all of these billions of shoppers in rising markets we’re going to get their first ever pc in type of an Android-based smartphone, and that after they’d these pocket-sized supercomputers, they had been going to get on the web, and that as a result of they didn’t have financial institution accounts they usually didn’t have cars and there was no goal shops, that they’d leapfrog and turn out to be digital shoppers, and since we’ve had such an evolutionary expertise with info and with know-how, we don’t understand that not everyone else on this planet has traveled that path as now we have.

So swiftly, what I used to be seeing was that each one of those billions of shoppers had been logging on and getting their first checking account, but it surely wasn’t a conventional checking account. It was a smartphone-based place to maintain your cash and make funds. Once more, I first noticed that in China. That began taking place in China. As you might know, I launched various China ETFs with Guggenheim, however we launched a China know-how ETF, CQQQ, most likely 13 years in the past to seize that story, the web shopper.

Then I noticed that it was evolving and it wasn’t simply China, it was Mercado Libre, which went public out of South America. That was the amazon.com of Brazil and Mexico. Now, what we see is that since this story began in China, China’s e-commerce market, it’s the most important on this planet by far. So China is an rising market in a conventional sense, however when it comes to the digitization story and e-commerce, China’s probably the most developed nation on this planet by far.

So what we began to see was that whereas there’s the opposite 45 rising markets, they’re principally the place China was 15 years in the past. So if you consider shoppers and the web and private computer systems, that principally began in the USA within the yr 2000. When might you actually have a pc at your own home, get on the web and do some enterprise on the web? That principally began within the yr 2000, and we noticed this 15-year S-curve because the FANG shares took over our lives and our inventory market.

The China wave, the second wave was principally proper behind us, 2005 to 2020, Alibaba and Tencent main the way in which, and now what’s coming is the third wave, and that is the opposite 5 and a half billion individuals that aren’t in China, and India is the most important a part of the story and South Asia, when you embody Pakistan and Bangladesh to the west and east, that is virtually two billion individuals and about 850 million Gen Z. So that is probably the most fertile floor for this story going ahead.

India stands alone in my thoughts proper not solely as the most important alternative in rising markets, however possibly the perfect alternative in rising markets when it comes to a single nation that we’ve seen, and it’s due to various causes which have simply lined up they usually’re lined up at a time when now you can get a $12 smartphone model new in India. Once I noticed you for dinner a couple of months in the past, I’d let you know you could possibly get a $50 smartphone model new in India. That is an Android-based smartphone, however simply seven weeks in the past, Reliance Jio launched a $12 smartphone, a $12 supercomputer. So whereas China after they obtained on-line, they had been on PCs they usually, like us, migrated onto the smartphone, properly, these individuals are skipping the PC altogether and the India story is simply extremely compelling.


Let’s dig in. So you’ve gotten the plain demographic. I really feel like most buyers can recognize that. You simply talked about there’s multiples extra Gen Z than there are People in complete, simply the dimensions of the quantity of individuals, the density. I’ve by no means been to India. I actually wish to go, so you’ll be able to assist be my tour information, however inform me a bit of bit about what the macro image. Stroll down what took you from, “Okay. That is curious and attention-grabbing,” to, “Okay. That is really actually attention-grabbing.”


Meb, three years in the past, we solely had one half of 1% of EMQQ inside India, and we solely had three publicly traded corporations, however what I noticed was that there was dozens of unicorns that had been lined as much as IPO. So I’d initially deliberate to go to India within the spring of 2020, however then the COVID got here and I used to be unable to go, however the IPOs occurred. There have been 23 Indian web IPOs within the first 18 months of the COVID, however all of them went public in India, in order that they didn’t get a lot protection right here. What was given me unbelievable quantity of conviction is the final 9 months. I’ve principally devoted all the final 9 months to a deep, deep dive into all issues India, together with the web alternative there, the digital alternative that now we have tapped into. As you already know, we launched INQQ, the India-only product final yr as quickly as there was sufficient corporations. So as soon as there was over 20 corporations sufficient to make a diversified portfolio is after we registered and launched.

So the story for India, which, by the way in which, this isn’t a secret. Virtually each main funding agency has some report outlining the bullish a part of the India story, however there’s principally eight bullet factors. First, it’s now the most important nation on this planet. It handed China in April in line with World Financial institution, so 1.4 billion individuals in India. For those who have a look at the chart because it goes out, it’s going to get larger and greater than China as a result of it’s younger. It has the youngest economic system, a significant economic system. They’re about 11 and a half years youthful on common than China. So that you’ve obtained 600 million individuals which might be simply stepping into their early a part of their prime. You’ve the quickest rising main economic system. Most of that progress is coming in a swelling center class that may in truth go China and have extra consumption inside a decade by most estimates, and also you’ve obtained the quickest rising e-commerce market. India’s rising just a bit quicker than Brazil, about 28% a yr.

Lastly, and that is the half that I didn’t recognize fully till not too long ago, India has a authorities that’s a democracy, which lots of people favor, and it’s a democracy that’s led by a authorities that has principally gone all in on digitization. Modi, who’s been the chief for the final decade, his entire platform is Digital India. So I knew that they’d finished various initiatives to assist the digitization of the nation, however I had no concept how well-developed these methods and this digital public infrastructure had turn out to be, which is an summary factor, which I hope we go into intimately. So you’ve gotten all these basic items, huge, younger, simply the guidelines, and it’s arduous to, with phrases or footage or numbers, to elucidate the dimensions of this chance, the sheer variety of people, the density.


Properly, you’ve gotten an precise fairly good chart and a few of the stats we’ve talked about earlier I feel hit dwelling, however you’ve gotten a great chart that we’ll put within the present notes on Bangladesh, however you mentioned the dimensions of Bangladesh after which if half of the US moved to Illinois is the inhabitants of Bangladesh, which simply places it in perspective, the density.


No, it’s staggering. There’s 170 million individuals and it’s the dimensions of Illinois. Additionally, a 3rd of its at all times flooded. So it’s principally two-thirds the dimensions of Illinois. You’d need to take the third by ninth largest international locations and mix them to get to the dimensions of India. It’s very, very younger, it’s very dense, and it’s fairly chaotic. In contrast to China, which is homogenous, 95% Han Chinese language, India has obtained 1600 completely different languages and 24 of them the federal government publishes each doc in. So there’s 1,580 languages that aren’t even acknowledged formally. So it’s extremely various and it’s very dense.

The opposite factor that India has going ahead now is also infrastructure. Once I obtained concerned with China 18 years in the past, it was principally tied with India. It was a bit of bit forward of India when it comes to its GDP per capita, however not very far, however what you could possibly see was China had begun this large infrastructure funding to construct the world’s finest infrastructure, high-speed rail, airports, highways, high-speed trains, and seaports to load up the manufactured merchandise and get them on a ship.

Whereas they had been doing this, India was mired in forms and principally sat on its palms and didn’t actually put money into its infrastructure, and China blasted forward and principally quadrupled the dimensions of their economic system. Plus in that interval, properly, India didn’t actually get shifting and the forms that the British left India or I feel largely in charge.

Properly, proper now, Modi is the chief of India, and he’s been the chief for the final 10 years. So he’s ending up his second five-year time period. He’ll virtually actually get one other five-year time period after they vote subsequent yr and a fourth time period if he desires it. There’s no time period limits. He’s liked. He’s obtained an 80% approval score. Not everybody likes him, however the overwhelming majority do, and he has obtained the federal government organized and environment friendly and really business-like, and that features the infrastructure investments. So all the infrastructure numbers have exploded underneath Modi within the final 10 years. They’re presently in the midst of a trillion and a half greenback complete infrastructure plan that includes modernizing the beautiful in depth rail community they’ve, electrifying it, including lots of of recent stations, modernizing the stations. They’re constructing their very own high-speed trains now. They’ll ship 400 of these trains within the subsequent a number of years connecting the cities, clearly, with the excessive pace rail.

The Indian air journey market’s going to blow up. That’s one of many early luxurious spends of individuals as they transfer up the patron ladder, they wish to go see the websites of their very own nation. So the home air journey market will explode in India. It’s already exploding. The airports are going to triple by the tip of 2025. So all elements of the infrastructure now are catching up. Again 17, 18 years in the past, they’d issues with the facility grid to the factories they usually had brownouts and so forth. They mounted most of that they usually’re making huge investments.

Now, a number of this has to do with this China plus one technique, looking for different provide chains and different suppliers so everybody’s not completely depending on China, and that’s most likely a sensible factor to wish to do anyhow, however the actuality is China’s obtained the perfect infrastructure they usually’re in a position to make the perfect merchandise, get them on a ship higher than anyone, and it’s the port capability that’s going to be a bottleneck as a result of China’s port capability is 10 instances India’s, and it apparently takes a very long time to construct a port.

So that you’ll see manufacturing jobs go to India. Apple’s going to make 1 / 4 of their iPhones, the most recent iPhones, by the tip of 2025 by estimates. So the infrastructure is lastly there they usually’re actually taking it severely and it exhibits, and it does feel and look like Shanghai and China did once I first went there 17 years in the past.

Now, right here’s the third a part of this setup that India has, and that is the half that I alluded to earlier that’s it’s distinctive on this planet, no different nation developed or rising has this, and it’s what they name the digital public infrastructure or the India Stack. A lot of the parts of this digital public infrastructure whereas summary to me, I knew what they had been, however I didn’t fairly recognize how they’d developed and developed. It began in 2009 when the Indian authorities had determined it was lastly time to create a nationwide id card so that everyone within the nation would have a novel 12-digit quantity on a card given formally from the federal government as a result of one of many issues they had been having with growing was that no one had identification. Only a few individuals had driver’s licenses or passports or any type of official authorities identification. As you’ll be able to think about, it’s arduous to develop your economic system the place no one can show who they’re.

They requested the chairman of Infosys, Nandan Nilekani, if he could be in cost. Mr. Nilekani mentioned, “Look, I’ll be in command of this, but when we’re going to do that, I’m going to make use of a number of know-how as a result of,” as he mentioned, “I didn’t see as a lot know-how as I’d’ve anticipated once I helped the individuals in Bangalore, and now if I’m going to do that, we’re not solely going to make use of the perfect know-how of at this time, however we’re going to look to the long run, and never solely will we give everyone a card, everyone will even have their 12-digit quantity linked to their eyeball scan and fingerprints.” So each quantity has a human being tied to it, biometric knowledge.

Now, after they launched it in 2010, it was completely voluntary. You didn’t have to enroll. So I knew about this program. I had the emblem in my presentation. It’s the nationwide id quantity. That’s going to be good for the economic system, however I didn’t fairly observe its improvement. Then about three years later, they put one other layer onto the stack. So the Basis Aadhaar, then they put a KYC, know your buyer, layer on high. With this program, they began initiatives in order that you could possibly go into any financial institution. For those who had been within the Aadhaar system, you could possibly stroll right into a financial institution and open a checking account in three minutes with no paperwork simply by placing your fingers on a pad and searching into the digital camera.

In 2016, they launched this different initiative, the Unified Funds Interface or UPI. Once more, this obtained a number of protection. It was a part of Digital India. I put the emblem in my presentation about India, however I didn’t actually observe the event, however the headline of the UPI was that it might enable instantaneous, fully free switch of cash from any individual to another individual or enterprise, no delay, no friction. I might ship you $10, you could possibly ship it again to me. We might do it 20,000 instances, it might nonetheless be $10.

So I mentioned, “Okay.” Properly, however to be completely trustworthy, the primary factor I felt about that program was a priority as a result of one among our corporations that we talked about, it hadn’t gone public but, but it surely was the Indian Funds Chief, Paytm, which I began that includes in my presentation after Berkshire Hathaway invested within the firm about eight years in the past and it was nonetheless personal.

The following a part of this isn’t a part of the digital public infrastructure, but it surely successfully acts prefer it, and this was form of the Huge bang second. This can be a personal enterprise known as Jio or the Jio Community. That is the most important cellphone provider, the cell phone subscriptions. Jio is a part of Reliance Industries. What occurred, the identical yr that the UPI was launched, Mukesh Ambani, who runs Reliance Industries, had made a really decisive choice that Jio wanted to go all digital and that Reliance wanted to go huge on the digitization of India’s story, and their first and really daring transfer was to purchase the one 4G license, the one 4G spectrum within the nation, and make investments $25 billion to construct a national state-of-the-art 4G community that was additionally contemplated 5G and 6G coming down the road.

Now, on the time, there was a couple of dozen different carriers and all of them had been on 2G, they usually had been all locked in a value battle, and their steadiness sheets had been horrible they usually couldn’t even make investments to maintain their 2G operating very properly. So Jio is available in after which they launched within the November of 2006, identical yr because the UPI, and their pitch is fairly easy, “Now we have the one 4G community. For those who enroll with us, we’re going to provide you free voice calls endlessly, limitless, and we’ll offer you six months of free knowledge, after which after your six months is over of free knowledge, we’ll nonetheless be the one 4G community and we’ll even have the bottom costs.” In order that was their provide.

Then the objective that Mukesh put ahead was that they’d enroll 100 million individuals by the tip of the following yr, so by the tip of 2017, and that was a reasonably daring objective. It was particularly daring as a result of again then when you wished to get a brand new cell phone, it took about three hours on common if you went to the cellphone retailer since you would, once more, need to show who you had been they usually must confirm you manually.

When Reliance Jio launched, they used the Aadhaar system as a result of it’s open for individuals to make use of, and of their shops, they’d principally the eyeball reader and the fingerprint reader, they usually opened 100 million accounts in 4 months, a median flip time of 5 minutes down from three hours. So this was the primary time the industrial energy of this India Stack actually made itself seen.

So now when you quick ahead to at this time and what’s occurred within the final three and a half years as a result of COVID accelerated as greater than anyone, another nation, that cellular funds have exploded, that UPI platform now accounts for 40% of the world’s real-time on the spot cash transfers, and the slope of the curve remains to be at 45%, 50% progress. What has occurred along with that’s the authorities additionally took out the excessive denomination payments they usually simplified the tax code.

So seven years in the past, the Indian economic system was 95% cash-based, paper-based money. Now, it’s 75% digital. So it went from 4.5% digital to 75% digital. Once more, the funds numbers have exploded. The tax revenues to the federal government have exploded as a result of everybody’s now within the correct monetary system not dodging taxes and dealing off of money. So that you’ve taken what would’ve taken 60 years within the outdated world to modernize their monetary system, they usually’ve finished it in seven years.

So this India Stack, no one else on the planet has this, and apparently now, Nandan Nilekani, the chief of all of this, he’s now providing it as much as different international locations. The truth is, a number of international locations have signed as much as take a replica of the UPI, together with France. Aadhaar will most likely be a bit of tougher to promote individuals due to the privateness, however anyhow, this digital stack is a secret weapon and folks I don’t assume recognize it and perceive it as a result of I didn’t perceive it or recognize it till not too long ago and it’s not finished.

The opposite essential component to India is you say, “Okay. Properly, when you’re going to have e-commerce, what’s the present commerce? The place are individuals getting their stuff at this time?” In South Asia, in India particularly, they get their stuff from 13 million mother and pop shops. So 90% of all shopper spending occurs in these little like a bodega in New York Metropolis. It’s a small store that has 200 objects of what you want daily. Once more, there’s 13 million of those shops they usually’re extra formal retail. Huge field shops have been launched, however they’ve not been in a position to take very a lot market share.

So what I feel India goes to finish up with is a hybrid, the place the kirana shops are going to turn out to be digitized. It’s already taking place. The truth is, Paytm, who I referenced earlier, it actually has a stronghold in these service provider markets. Paytm’s discovered a method to earn a living. They make mortgage now, they turn out to be the banker for the kirana retailer house owners and make loans. So, I feel what you’re going to finish up with is a extremely digital mother and pop, hyperlocal e-commerce, and there’s a brand new layer to the stack to drive this. It’s known as the ONDC, and that is the most recent, once more, led by Nandan Nilekani.

The ONDC is the Open Community for Digital Commerce. It’s designed to assist additional combine these mother and pops into the nation’s e-commerce. I can’t clarify it properly, and I don’t assume when you … There’s an ideal Morgan Stanley interview with this man, Nandan Nilekani. It’s a 12-minute interview the place he talks about all of these items from the start after which appears to be like ahead to what’s coming down the pipe, however he says that this explicit new program is perhaps probably the most highly effective factor that they’ve launched. It’s arduous for me to imagine something could be extra highly effective than that basis, but-


Properly, it’s fascinating. While you speak about this, listening to it, it’s extremely optimistic and apparent and thrilling, and then you definitely do it by the American lens of Huge Brother and, don’t know, if it’s even libertarianism. It simply desires the federal government out of their life. The prospect of doing one thing like this in a rustic like US, I put it at close to zero.


That appears proper. That looks like the precise quantity.


Rounds to zero is the phrase from Oppenheimer. It’s humorous as a result of I ponder what a part of the story after we arrive at analyzing these alternatives and investments, we include our preconditioned bias of pondering of the world in American phrases or Western phrases or no matter, after which it’s a very completely different perspective in India that truly, whereas we might imagine it’s a possible, everybody sees the China Huge Brother, you’re strolling by the intersection, they’re going to zap your face after which endlessly you’re shamed and in a database, however I feel on the flip facet of that, there’s a ton of positives and alternative that appear like an Indian instance is fairly attention-grabbing.


I feel it’s simply getting began. I feel there are …. Once more, if you hear this man, an, speak about it, he mentioned, “Numerous the stuff they’d no concept of the way it was going to work out. They simply knew it might be highly effective.” Like I mentioned, I feel it’s a secret weapon and for a lot of causes, together with what you simply talked about, like a number of international locations, the inhabitants goes to take a look at that as a Huge Brother sort of factor and never comply with it, at the very least not anytime quickly, and possibly that was a part of the success with Aadhaar was voluntary. No person needed to do it, however I feel individuals noticed that there was a profit. You possibly can show who you had been simply by simply taking a look at a digital camera, and simply as utilizing your QR code to pay for one thing is best than utilizing money. There’s loads apart from commerce causes that that is perhaps a beneficial factor or at the very least a liquefier of issues. You concentrate on going by safety traces in airports or what have you ever that may be accelerated with that platform that, once more, I feel is kind of distinctive.

The opposite factor that I feel is attention-grabbing about this, and Nandan Nilekani talks about this as properly, however India doesn’t have a really well-developed shopper credit score market. I’m not an economist, however what I’ve seen from some economists after they have a look at India’s shopper credit score market and if it begins to develop and look extra like a developed world’s shopper credit score market the place extra individuals have credit score and use it, that might add two or three share factors to their GDP progress on an annual foundation, and that’s one of many issues now that Nandan is speaking about is, properly, now that you’ve got this what he calls informational collateral, that it’ll set the inspiration for a probably very massive progress in shopper credit score, which then accelerates the GDP progress, which the estimates are 6%-6.5%.

By the way in which, that’s one of many different issues. I’ve made over time various associates which might be Indian buyers, they usually’re extra skilled than me, actually in India, however they’re extra skilled than me additionally simply in years. A lot of them have been very profitable in enterprise capital or hedge funds, personal fairness. I’ve tried to determine, “Okay. What am I lacking right here? What can go incorrect? What are the issues that I’m not understanding?” One among these people who has most likely in some ways an unbelievable pedigree, Wharton, early enterprise investor in India, he’s the actual deal and he mentioned, “The factor individuals are lacking is we will most likely develop quicker, and why not? China grew. It died 10%, 11% for some time. Why can’t India try this?”

I feel, once more, I’m not an economist, however I really feel like the facility of this digital platform they’d in and of itself might be value some incremental GDP progress price. Simply if you consider the working capital cycles for individuals after they’re immediately shifting cash, so it’s going to be the thrilling 20 years in India and it appears to be like actually good.


So let’s speak a bit of bit concerning the funding alternative set. I feel there’s a basic apathy with regards to rising markets. A part of that as we all know is simply buyers’ sentiment is at all times drawn to what’s going up probably the most, however one of many causes I do angel investing is with the hope that making an attempt to remain present and hopefully see across the nook a bit of bit, and I feel we talked about at dinner, however I mentioned a really massive variety of my startup investments over the previous 5 years specifically however actually over the past 10 have been XUS and a few of the finest performers have been XUS, Latin America, Africa, which we did an entire sequence on the podcast, however then India, Pakistan, and Bangladesh.

These three specifically, you see these exponential traction alternatives such as you talked about, the place you’re going from yellow pen and paper to swiftly a digital adoption and the numbers simply in a short time turn out to be staggering. So it’s positively been attention-grabbing and curious to observe. As you speak about this message, and also you’ve finished it earlier than, speaking about these markets, what are the most important pushbacks from buyers on why they might not be or why they’d be not fairly but or turned off by this chance?


Numerous our narrative of our India analysis is, is India like China 15 years in the past? As I discussed that the GDPs had been about the identical, there wasn’t smartphones again then so we will’t have a look at smartphone penetration, but it surely does look statistically like China. Then there’s anecdotal issues. My second journey to Beijing was 15 years in the past, and I visited the model new Apple retailer, the primary Apple retailer that was opened in China, and two weeks after I left India, the primary two Apple shops opened there. Now as I could have talked about earlier, the issue is when you had invested in China 15 years in the past, appeared and mentioned, “All proper, I feel China’s going to develop loads. I’m going to purchase the China ETF,” properly, you had been proper, the Chinese language economic system grew 409%, however the FXI went down 51, so that you misplaced half your cash.

So now the query is, okay, properly you wish to put money into India, the PE multiples for the broad indexes are fairly excessive, the best on this planet in line with Shiller CAPE ratios that Burton likes to make use of. In order we are saying in Omaha, you pay a excessive value for a cheery consensus. The truth that India has all these optimistic issues, that it’s not concerned with Russia, that it’s not concerned with China and Taiwan, it’s like a protected haven in a method amongst rising markets the place you’ve obtained wars happening and folks assume China’s going to do one thing with Taiwan. There’s all that stuff. India stands alone.

Frankly, we’re discovering fairly good reception for it. We didn’t speak concerning the product for actually the primary yr till I went and noticed what I noticed and got here again and processed all of it, however we’ve had some, once more, coming off of a really, very small base, we’ve had some flows and individuals are , however one of many challenges that we face as a enterprise is that our current main product, EMQQ, it’s out there at locations like Morgan Stanley and UBS with advisors that we all know, and the India product remains to be small and it’s not out there in these locations. So the primary pushback we get is I can’t purchase it as a result of it’s not authorised on my dealer’s platform.


Say, “Good, simply go open up a private PA account and you should purchase it in your personal-”


We’re doing what we will to seek out individuals that may purchase it, however the efficiency this yr is fairly good. It’s up about 20%. As you already know, there was a reasonably important correction in our essential product, EMQQ, and that was loads due to the China tensions and the delisting threat and the federal government crackdown, each of that are finished and not likely … I don’t consider them the way in which most individuals do. I feel they had been simply noise, however they’re additionally each behind us. The China shares weren’t the one ones that go down. All of the Indian web corporations additionally went down about 75% from their high. Now after we launched, they had been already down loads. So our monitor report’s unfavourable, however it might’ve been a massacre if we had launched 9 months earlier.

I’ll say that the valuations proper now for the INQQ portfolio I feel are very compelling. Once I have a look at the PE for the Indian inventory market, so when you purchased the iShares India product, both the Nifty 50 or the MSCI, they’re principally the identical, INDA and INDY. These merchandise proper now, the PEG ratios are very excessive. I like to make use of the PEG ratio. That’s the one ratio I care about. I like to take a look at it two methods. I like to take a look at the PE over the income progress price as a result of the highest line to me is probably the most pure type of progress. You’ll be able to have a enterprise that’s even shrinking and purchase again inventory and in any other case develop your earnings, however that may’t go on endlessly. So I have a look at the PE to income progress first.

Once I have a look at the PE to income progress for the INDA, the INDY, it’s 3.5. You’ve obtained a 21 PE and a progress price of 6%. Now, the INQQ has obtained the identical PE and it’s obtained a progress price that’s thrice that. So the PEG ratio is 1.28 or name it 1.3. So whereas the India market broadly, the Nifty 50 and the MSCI, they replicate a really rosy outlook with these 3.5 PEGs. These corporations, which they’re not included within the indexes, most of them, have a PEG on a income foundation that’s 1.3. On an earnings progress foundation, the PEG ratio for INDA and INDY isn’t as unhealthy. It’s like one seven-ish, however the PEG ratio for the INQQ portfolio is 0.98. So a long-term investor, and if you should purchase the digitization of India at a PEG ratio of 1 at this time and also you’ve obtained 10 or 15 years, I feel you’ll do fairly properly.


There’s a few issues that you just delivered to thoughts. One is, listeners, we’ll put loads … Kevin’s talked about a number of sources, PDFs, movies. We obtained the worldwide CAPE ratios from Barclays. All these items we’ll put within the present observe hyperlinks at mebfaber.com. Right here’s a enjoyable experiment, listeners, to examine your biases is you’ll be able to pull out a bit of paper and write down, see what number of you’ll be able to guess and see what number of you’ll be able to guess so as the world’s 10 largest inventory markets. There’ll be a pair in there that’ll most likely shock you, and there’ll be a pair in there that you just’ll most likely get method out of order. I feel it’s a enjoyable experiment and in addition to examine the magnitude of a few of these which might be possibly already there that you could be not assume that might be, and even a couple of that don’t commerce an entire lot. So test it out.

While you’re speaking about China and the efficiency, I don’t know that there’s been a rustic over this previous cycle. There’s actually been international and rising international locations over the past 40, 50 years that has seen a wider spectrum of agony and ecstasy than China. The previous isn’t at all times prologue to the long run, however taking a look at your fund, I used to be smiling as a result of I’m drawn to stuff that’s in drawdowns. That’s my factor, however taking a look at your fund specifically, which is extra concentrated doubtless than the broad mark cap index, however the percentile rank, which is waffled between, primary, and it goes to 96, one, 100, two, two, sorry, one yr one, then 190, 90. So you’ve gotten this era the place simply the flip flop of individuals being binary, so excited and optimistic, after which so despondent, and simply the emotional swings on this nation would make a random walker blush, I feel, to rope Burton into this.

I really like the issues which might be unloved, and the rising story, my goodness, throughout the board appears like that. As you look again at touring by India, Bangladesh, Pakistan, China even, any explicit reminiscences or tales that basically stand out? It might be from assembly corporations, from chatting with buyers to authorities officers, something that you just’re like, “Wow, it is a nice story,” or, “This left a giant impression”?


Properly, let me communicate to the South Asia a part of that. To begin with, we began in Dhaka in Bangladesh, which is perhaps probably the most intense metropolis on the planet. The density of Bangladesh we talked about, however the density of Dhaka itself, it simply will get arduous, you’ll be able to’t put it into phrases. The opposite factor about South Asia is it’s fairly chaotic. The streets themselves are form of emblematic of the entire thing. You’ve obtained donkeys pulling carts, you’ve obtained individuals pulling carts, individuals pushing carts, cement vans, bicycles, rickshaws, bike rickshaw, the whole lot, and it’s simply chaos, and due to the density of Dhaka, it’s intense, and there have been a number of instances after we had been strolling and we actually couldn’t transfer anymore. We might cease, and it only a … It was a visitors jam, however there have been extra than simply vehicles concerned and also you’d need to step backwards three steps and take two steps to the precise simply to go ahead.

So I’d say my first day in Dhaka was fairly intense. I feel the issues we selected to go see had been significantly its heads, the wholesale market and so forth. The Dharavi slum in India can be fascinating. That is the place the Slum Canine Millionaire got here from. It is likely one of the densest locations on the planet. There’s virtually 1,000,000 individuals. It’s like a 3rd of a sq. mile. It’s very small and dense.

What I didn’t recognize is it’s principally a enterprise as properly. Mainly, one facet of the slum, they carry in waste merchandise and plastic remnants and so forth, they usually undergo the alleys and there’s all these little artisan or craftsman, I don’t know what the suitable phrase is, however they’re breaking apart issues made from plastic and separating them, after which the following station, they’re melting. Mainly, by the tip of the road, they’re model new completed backpacks with tags on them which were all made between the junk pile and the opposite facet of the slum. It was very fascinating.

Additionally, that is very well timed as a result of Tata is on the brink of redevelop the Dharavi slum, which will probably be attention-grabbing as a result of just like the hutongs and the lilongs in China, they’re historic neighborhoods, and that’s most likely a great motive to modernize it. By the way in which, the actual property costs within the slum are off the charts. So when you personal a home, you already are a slum canine millionaire, principally. In order that was attention-grabbing.


I used to be going to say, as I attempt to consider the danger to any funding on the macro, on the micro, on the whole lot … By the way in which, listeners, two actually excellent books, Shantaram, after all, is known, White Tiger, additionally a superb guide. It’s been made right into a present, however the guide, like many, might be a lot better. Are there any issues that you just assume are usually one thing that folks ascribe to being a threat for India? Is the caste system? Is there any political? You talked about it’s democracy and it appears to be fairly a bit extra secure. Is there something that’s on the listing, whether or not it’s for you or for different individuals which might be speaking about … China, there’s so many entrance of thoughts ones with Taiwan and their interactions, however India, at the very least, I don’t see the headlines as a lot.


I’m looking for the danger. Those which might be apparent are, to start with, Modi. Modi, it is a threat … Finally, one of many issues I feel we’ve realized within the final 10 years is it doesn’t actually matter what type of authorities you’ve gotten. If the man in cost goes loopy or in any other case does stuff you don’t like, then all bets are off, and it doesn’t matter if it’s a monarchy or a communist celebration or a democracy. The individual in cost is usually a drawback.

Now, the excellent news is I feel Modi, he’s an asset, however he’s not in his 30s, so there’s positively the political threat, the Modi threat. The nation has had different leaders which have left workplace prematurely for unplanned causes. So there’s positively racial tensions. Up within the very, very far east of the nation, there’s been an entire lot of racial violence. Really, one of many issues that India does after they have issues is that they shut off the web. So there’s a area, a small area in India the place they’ve had a number of sectarian violence they usually haven’t had the web for 3 months both.

One of many different attention-grabbing issues I did once I was in India is I went and crossed into Pakistan on the Wahga border, the land border, and it’s the place the Indian guards and the Pakistani rangers do their ceremonial march and making an attempt to out excessive step one another. We flew to Amritsar, which is the primary metropolis there, and it’s the place the Golden Temple is, which is the middle of the key faith, which is an incredible place, equally as spectacular and superb, I feel, because the Taj Mahal.

Whereas we had been there that afternoon, the web went out, and what we came upon was there’s a Sikh separatist that had sprung one among his followers from a jail someplace, they usually shut off the web so he couldn’t talk together with his different separatists. My colleagues had been unable to guide flights to get out of city that afternoon.


You bought to hold round Elon’s Starlink, man.


No, I’ve one someplace, however I didn’t convey it with me, however I crossed the border in time to get protection on the Pakistan facet. The opposite threat that appears fairly clear to me is the environmental threat. The nation is … So most of the individuals reside alongside the Ganges River they usually’re having very huge warmth. Actually, it could turn out to be uninhabitable, they usually’ve seen a number of issues in the previous few years with excessive, excessive warmth in and round Delhi. Air pollution is a large drawback throughout South Asia as properly. Once more, a number of the water comes down from the Himalayas, and there’s most likely extra environmental threat in India than different locations.

I feel that, as with a number of different dangers, you don’t actually realize it’s a threat till it exhibits up and also you say, “Oh, sure, that was a threat,” however I’d say the political stability, which is sweet now, however issues can change in a single day for any variety of causes, and the environmental threat appears actual. Apart from these two essential ones, it looks like … As a result of a number of the India tales, that inside story, whereas the China story was an export pushed story, I feel what India goes to finish up with is much more inside progress versus pure export progress, which is what China led with.


Properly, it’s thrilling. Once we talked final time, you mentioned you had been going to assist me after we had been beginning the Kevin Carter Journey Capitalist Journey Company to return give some excursions. So I’m going to tag alongside and be a part of you on one among these subsequent time, however first, we’ll begin with a bit of boat tour of Tahoe. How’s that sound?


That sounds nice.


Superior, my buddy. Finest locations for individuals to take a look at your funds, web sites? I don’t assume you try this a lot on Twitter. The place do they go?


Emqqglobal.com is our web site, after which yow will discover me on LinkedIn, Kevin T. Carter, and yeah, you’ll discover us if you wish to.


Superior. Thanks a lot for becoming a member of us once more at this time.


All proper. Thanks, Meb.


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